Earlier this month, Treasury Economic Secretary Ed Balls confirmed fears that Asps will be hit with an inhibiting spoiler charge or scrapped outright. At the Financial Services Forum in London, he revealed that the Government will make an announcement on Asps in the pre-Budget report and the dogmatic tone of his comments indicated that the news will not be positive.Balls said: “The danger is that it contradicts our view on forced annuitisation at 75, potentially has some tax problems for us and is outside the original intentions.” The “original intention” referred to by Balls is that Asps were only meant for people with religious or moral objections to annuities, such as the Christian Brethren. The Government believes that some sectors of the industry are guilty of abusing the product to help clients avoid paying inheritance tax. The Government seemingly cannot be swayed by figures produced by Winterthur Life and Hargreaves Lansdown which demonstrate that Asps can contribute more to its coffers than annuities. It appears equally unmoved by the argument that it would be highly discriminatory, let alone practically impossible, for the industry to restrict Asps on religious grounds. So perhaps the only thing the industry can do now is show a united front, create a lot of noise and make the prospect of tinkering with Asps as embarrassing as possible for the Government. This week, it has done exactly that, with GE Life leading industrywide calls to stick two fingers up to the Government and continue to advise suitable clients to take out Asps. GE Life retirement product manager Ray Chinn’s reasoning is straightforward. He says advisers should not rule out Asps as clients who buy the new products can later switch to an annuity if the Government confirms the industry’s worse fears. He says: “It is looking gloomy for Asps but if the Government does change the rules, presuming that it does not take action retrospectively, all it can do is force clients with Asps to take out an annuity. If it does not change the rules and the client has already bought an annuity, they are stuck.” Hargreaves Lansdown head of pensions research Tom McPhail takes this argument a stage further, arguing that overcautious IFAs could face misselling claims if they advise customers to take out an annuity and Asps are left intact. Chinn’s common-sense approach has struck a chord with many influential figures in the industry. Origen head of annuities Nick Flynn says: “We are beefing up our warnings to that extent that the Government’s recent comments are almost the first thing we mention to clients when discussing Asps. We will continue to make the Asp option available. If Asps are abolished, people can always annuitise.” Standard Life marketing technical manager Andy Tully says: “Our message to advisers is to continue as is. You cannot change your approach based on speculation. If Asps are scrapped, this will be another blow to the industry’s reputation.” Winterthur Life pensions strategy manager Mike Morrison agrees with Hargreaves Lansdown that IFAs who do not offer clients the Asp option could find themselves in hot water. He makes a point which explains why the preservation of such a non-mainstream product is so important to the industry. “How can the Government force people to buy annuities when their past performance is so bad?” he questions. Morrison believes that the removal of Asps will act as a further disincentive to save at the time when the Government is trying to set up a national pension savings scheme to solve the pension crisis. However, Scottish Life is one of the few major companies not to toe the industry line. Head of pensions strategy Steve Bee says the Government has made it abundantly clear from the start that Asps were only designed for restricted use and were never meant as an alternative to annuities for the wider public. He says if the Government does scrap Asps, as seems increasingly likely, the bigger issue becomes how it can marry forced annuitisation with the incoming European anti-age discrimination rules. In any case, Bee argues that IFAs which ignore Government restrictions on Asps are playing a very dangerous game indeed. But some would dispute this. For all the Government’s threats of cracking down on “willful abuse” of Asps, many firms are comforted by the fact that what they are doing is entirely legal. The Government knows it cannot enshrine the restrictions on Asps in law for fear of breaching human rights and anti-discrimination legislation. The industry can rightly argue that not only is it well within its rights to advise any suitable client to take out an Asp but it would be illegal to do otherwise. The fact that GE Life’s latest comments have generated such widespread support confirms the fact that the industry is not going to budge on this issue. Unfortunately, it seems equally apparent that no amount of industry defiance – however justified – is going to change the Government’s mind.
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Out there lies a warm ocean of desert islands, sun, sand and palm trees, where individuals can choose how and when to tax-efficiently access their pension fund and realise the retirement dreams they have worked so hard for.
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